I Policies and Agricultural Development in Ukraine Stephan von Cramon-Taubadel Sergiy Zorya Ludwig Striewe (Eds.) II Preface by Ivan G. Kyrylenko, Minister of Agricultural Policy of Ukraine Ukraine needs comprehensive, scientifically-based, purposeful and constructive agricultural policy, which in its logic and principles not only complies with the course of the accelerated market transformation of the country’s economy, but is rather its leading element and encouraging factor. None of Ukraine’s sectors has such favourable preconditions for deep and qualitative reconstruction as agriculture and the other spheres of the Agroindustrial Complex. Today, the revolutionary changes initiated by the famous Presidential Decree “On immedi- ate measures to accelerate agricultural reform” of December 3, 1999 are taking place in the villages. This document can rightly be called historically fateful. Within a short period of time, work of un- precedented volume, speed and scope has been accomplished – the collective agricultural enter- prises were reformed and based on them over 14,000 farms of different types were created, 6.4 mill. citizens received their land share certificates, and 1.5 mill. peasants have already received the state acts for land private ownership. The dream of Ukrainian farmers – to be the real owners of their land – has been realised, therefore. And this is the main benefit of the reforms in 2000. Thanks to the implementation of the Presidential Decree, the structure of land use has changed considerably and the huge energy of private initiative was freed up, generating first posi- tive results – land began to work for its owners. For the first time since Independence, farmers op- erated in 2000 without direct state financial support and intervention in the agricultural operations. Despite pessimistic forecasts, for the first time in 10 years Ukrainian gross agricultural output in- creased (by 9.2%). It is clear that the creation of the appropriate economic conditions for the formation of new agricultural structures substantially encouraged this good result, mainly due to the improvement of the price mechanism and price liberalisation, the development of agricultural market infrastructure, the creation of a favourable tax system and the implementation of effective mechanisms of farm crediting. Particularly, Law of Ukraine “On fixed agricultural tax” effectively halved the tax burden and re- placed 12 individual taxes and duties that had prevailed earlier for farms. This simplified tax system reduced the annual tax burden for farms by 1.4 bUAH. Furthermore, agricultural producers have been granted privileges on value-added tax and a number of other privileges which encourage in- vestment in agriculture. The problem with farm indebtedness to the state budget was also resolved. A non-state Agency for Farm Debt Restructuring was established to settle farm commercial debts. This Agency works with credit and guarantee funds, auditor and asset valuation firms, traders of securities and insurance companies. This co-operation should ensure the creation and normal functioning of the debt market. In the crediting system, a special regime which foresees the partial compensation out of the State budget of Ukraine of the commercial banks’ interest rates on credits has been established, and the financial institutions to serve agriculture in accordance with the state program on credit provi- sion to farms have been established. These measures have made agriculture attractive for banks and domestic investors. The main fundamentals of further state regulatory agricultural policy under the conditions of the formation of market relations were defined by the Law of Ukraine “On stimulation of development of agriculture for 2001-2004”, approved by the Verkhovna Rada of Ukraine on January 18, 2001. For the period outlined in this law it is foreseen not to make changes in the current tax system III which could increase the tax burden on agricultural producers. Instead, tax legislation should be improved with the aim of reducing this tax burden. The creation of a system of long-term crediting and credit-guarantee institutions – fund for credit guarantees, a Land- and Co-operative bank – is foreseen. As regards the insurance system, the compulsory insurance of all crops for state farms and grain and sugar beet for non-state farms has been introduced. Insurance payments for obligatory insurance of crops and perennial plants are partially compensated from the State budget of Ukraine. Price policy in agriculture and income support for agricultural producers based on subsidies plays an important role in the state’s regulatory policy. Ceilings on electricity prices for farms have been set. Having implemented the mechanisms outlined above, the state is simultaneously increasing the responsibility of the agricultural enterprises for their activities and results, prohibiting further write-offs and restructuring of debts for taxes and duties, budget loans and credits under govern- ment sovereign guarantees, as well as cancelling the moratorium on farm bankruptcy. These steps comply with the interests of domestic and foreign investors and represent an important component of the strengthened formation of normal credit relations between input suppli- ers, banks and farms. The implemented measures and the directions of the state’s regulatory agricul- tural policy will generally encourage the creation of a basis in agriculture for continued profitable farm development, the attraction of investments, and increases in main types of agricultural produc- tion. Thus, gradually the strategic goals of agricultural policy are being realised, which include the formation of real effective land owners, the social and economic development of rural areas, and helping Ukraine’s agricultural sector reach an international standard of development. This is the general logic of transformation, which defines the main thrust of agricultural policy in Ukraine to- day. Looking at the general state of affairs, and especially with a view to future perspectives, the many-sided German-Ukrainian co-operation in economic, political and scientific spheres is consid- erable. This helps to broaden mutually beneficial relations between the two countries. Convincing proof is this book, the second in a series, which has been written by German and Ukrainian re- searchers and is devoted to highlighting the development of agricultural reforms in Ukraine and providing perspectives on the development of Ukrainian agricultural policy. IV Preface by Dr. Gerald Thalheim (MP), Parliamentary State Secretary in the German Ministry of Consumer Protection, Food and Agriculture For Germany, Ukraine is an important partner in Europe. Therefore, Germany not only monitors the course of reform in Ukraine with great interest, it actively supports this reform, for example by means of the TRANSFORM-Program. The goals of the TRANSFORM-Program are to improve the conditions for the creation of a functioning market economy and to strengthen the basis for democracy. The instruments employed to these ends include the provision of policy advice for government and parliament, support for the development of private entrepreneurship, and education and training. Of course, such support can only help those who are trying to help themselves. We sense that the aid we provide is appreciated as a helpful and effective expression of German solidarity and desire to contribute to the process of restructuring and re-thinking in both the public and private spheres. Our Ukrainian partners within the government, but also others with whom we co-operate in various projects, appreciate our focus on their needs, our ability to provide rapid and flexible assistance, and the fact that we avoid standard, ‘one size fits all’ solutions. Germany has financed projects with an agricultural focus in Ukraine since 1992. Based on the experience gathered over the years and in co-operation with representatives of Germany’s agri- business sector, a concept for the development of Ukrainian agriculture was developed whereby publicly financed support is combined with private investment. Since the beginning of 2000 this concept is being implemented in the form of the German-Ukrainian Agricultural Development and Investment Project (DUAP in German). DUAP is meant to be a model for bilateral co-operation in the area of agriculture. The aim of DUAP is to improve the performance of Ukrainian agriculture and to support the process of transition. Focal points of the project work include the development of an agricultural consultancy service for farms and agribusiness enterprises, the provision of education and training for practitioners and managers in agriculture, and the fostering of co-operation between German and Ukrainian firms. The experience that is gathered in the course of this work contributes to the im- provement of the economic and legal environment for agribusiness enterprises in Ukraine. In its efforts to improve the climate for domestic and foreign investors, the Ukrainian gov- ernment is supported foremost by the German Advisory Group on Economic Reform with the Gov- ernment of Ukraine, which represents a further dimension of the TRANSFORM-Programme. This book, compiled by the German Advisory Group, contains analyses of the development of the Ukrainian agricultural and food sector to date, together with numerous recommendations for agri- cultural policy measures that would improve production, trade and agricultural structures. I am confident